Socialist Meltdown


October, 2008

Have you ever had a sibling do something really horrible and then have the sibling point at you and scream, “He did it, mom!”?

 Well, that is the case with the big government types (Republican and Democrat) who are trying to blame capitalism for the financial meltdown caused by their interference in the financial markets.

 While government meddling is at the core of the recent turmoil, there are also many “businesses” and greedy people in expensive suits at the scene of the crime. But don’t confuse these participants or their “business” with free markets or with capitalism.

 Capitalism refers to an economic system where people take risks, make investments, trade freely, and make profits (or take losses) depending on how well they satisfy customer needs. Governments do not fund, insure, or otherwise partake in capitalist enterprises. When they do, it is called socialism.

 Capitalists risk their own money (or their investors’ money). Socialist schemes risk your money. And that is precisely what occurred in the U.S. mortgage market.

 A bank operating in a free market would never issue a $500,000 mortgage to an applicant with a low-paying job, a marginal credit rating, and/or no down payment. If it did so, the bank would risk a substantial loss and whoever permitted it would be fired. For the same reason, absent fraud, banks would never be able to sell such mortgages on the secondary market.

 So why were millions of such disastrous loans written? Because, Freddy Mac and Fannie Mae (known as Government Sponsored Agencies or GSEs) were willing buyers of over $1 trillion of such sub-prime and Alt-A mortgages. They did so with the active encouragement of Congress and with the presumption of federal financial guarantees.

 The government created a fraudulent lending environment driven by a political agenda, not by rational economic calculations. Those who participated were part of a government-created fraud and were not participants in a free market.

 Government fingerprints are all over this catastrophe. Now the taxpayers are paying the bill for these socialist policies and those responsible are trying to pawn off the blame on capitalism. If they succeed, they will tighten the grip of socialism on our economy, further constrain our liberties, and dramatically dim our future well-being.

Our future depends on recognizing the true cause of this crisis and addressing the other socialist disasters staring us in the face: Social Security and Medicare/Medicaid.

 A trillion here, a trillion there. Pretty soon it will all come crashing down. Heaven help us when it does.